Does Liquor Attract GST in India and What Are Its Implications?

Alcohol is consumed in large quantities in India. The state of Kerala leads the list of maximum alcohol consumption as Andhra Pradesh, Telangana, Kerala, Karnataka, and Tamil Nadu account for 45% of total alcohol consumption. Globalisation coupled with urbanisation has brought about a change in the lifestyles of individuals with the alcohol industry in India, growing at a compound annual growth rate of almost 8.8%. The Indian alcohol industry is divided into two separate entities: - Indian made (domestically produced) Indian liquor (IMIL) and Indian made foreign liquor (IMFL). Though alcohol is exempted from GST, the import duties levied and the taxes have increased the final price of imported liquor. Whiskey, wine, and vodka are some of the beverages consumed in large quantities.

In comparison to its western counterparts as well as other countries, the per capita liquor intake of India is low. However, the trend is shifting upward at a slow rate. 

The taxation on liquor varies across the states of India. For instance, the sale of alcohol has been prohibited in Gujarat since 1961. The state of Uttar Pradesh enjoys the maximum amount of revenues that accrue from the excise tax imposed on liquor.

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Which Category of Liquor Attracts GST?

Every type of liquor that is suitable for consumption is free of GST. However, in India, despite no liquor tax in India, the earlier tax on alcohol in India continues to prevail. 

Also Read: How to Apply for a Mumbai Liquor License?

Some of These Include

1. Excise Duty - Also referred to as the Central Value Added Tax, is imposed on products manufactured or produced within a country.
2. Value Added Tax - VAT, as it is commonly called, is an indirect tax imposed on products and services throughout the cycle of production and distribution. It is imposed right from the procurement point of raw materials until the finished product becomes commercially available for the end-user.

Below is a table that gives details of the types of alcohol that are liable to pay GST. These products are not meant for consumption. They are used in industries, which calls for imposing a GST on alcohol. 

Reasons for No Tax on Alcohol in India Are as Follows

1. Alcohol contributes towards an attractive amount of revenues towards the state governments. The approximate amount of such revenues on an annual basis is about ₹ 90,000 crores.
2. They maintain high prices to curtail excessive drinking by individuals.

Also Read: GST Rate & HSN Code for Beverages, spirits

What Is the Impact of Levying GST on Liquor?

Below are some of the resultant impacts:

•  The Central government refrains from imposing a tax on liquor specifically for consumption. A state government imposes taxes on the same. The diverse liquor producers argue that such taxes reduce their profits in a big way.
• Though there is no GST on liquor in India, the raw materials and other overhead costs are taxed. Some of these include barley, denatured alcohol, molasses, and glass bottles. The tax rate on these varies between 18 and 28%. It impacts the producers of liquor who have to bear the taxes. Again, if the producers increase the prices, it will likely affect their sales and turnover. Before the GST Act was established, transport costs and freight involved a 15% service tax. After the GST Act, this has increased by an additional 3%. So while there have been no glaring changes in VAT charged, these categories of beverages have seen an increase in the sale price.
• Reduced profits is a key concern for most producers of alcohol. It occurs when inferior quality brands flood the markets. It lures consumers who avoid the quality brands which are priced steeply.
• State governments continue to bear the brunt of decreasing profits.
• Quality liquor becomes unaffordable for consumers, and they try to experiment with cheaper brands which may have serious repercussions on their health. 

It is important to note that the only relief offered to liquor producers is the usage of second-hand bottles as they attract a reduced VAT rate. However, if the GST authorities impose a full tax rate on such bottles, the total amount of tax would increase from the prevailing 5% to anywhere between 12 and 18%.

Conclusion

The alcohol industry has not welcomed the Central Government’s decision of exempting liquor from GST. The details of this article clearly explain the reasons - the most important being the additional taxes on the materials involved in producing the liquor. Even if companies are eligible for a refund of the collective input tax credit, it takes very long to avail it and extend the working capital cycle. Beer includes only around 5% alcohol content, and producers of this beverage have stated that GST should be applicable as it would bring in more revenues considering India's growing tourist industry. All liquor manufacturers believe that if GST is imposed on liquor, the prices across the country will be uniform. Most importantly, the liquor industry will stand to make handsome revenues. However, every state views this differently as the liquor business accounts for massive revenues. Do you have issues with payment management and GST? Install the Khatabook app, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!